WTO Members have resumed work in the "Doha Round" negotiating groups in a positive atmosphere, but essentially at the technical level. The focus of work is to build upon the "July package" of framework agreements on agriculture, industrial tariffs and services, and proceeding with negotiations on trade facilitation. At this stage, no further political decisions in the Round can be expected for some months; nor are they needed.

Since negotiating bodies resumed meetings in September, the Trade Negotiations Committee has appointed the Chair of the Trade Facilitation Group and discussed preparations for the Ministerial Conference in Hong Kong in mid-December 2005. The General Council also received several nominations for the next Director-General. The process of appointing the next head of the WTO could be marked by contention, as with previous appointments.

Outside the Doha Round context, there have been important developments in WTO dispute settlement which could affect agriculture and other negotiations. There also exists increasing concern among smaller developing countries about the effects of the termination at the end of this year, of the quota system for textiles and clothing - and the negative implications of competition from more advanced countries like China and India.

I. Developments in the Doha Round: Technical Negotiations Resume; Setting the Course for the Hong Kong Ministerial

As expected, following the intensive and high-level process that produced the July package, the focus of the Doha Round has switched towards technical work in Geneva within the specialized negotiating groups. Further involvement at the political level is not expected before the advent of the new Administration in the United States and the new European Commission. Since there is a great deal of essential work to be done by experts at the sectoral level - in services, for example, real negotiations on the improvement of commitments have hardly begun - this re-focusing is necessary.

A. Trade Negotiations Committee: Decision on Chair of the Trade Facilitation Negotiations; Setting Course for the Hong Kong Ministerial

The meeting of the Trade Negotiations Committee on 12 and 13 October was consequently un-dramatic. The meeting had been delayed by disagreement over the Chairmanship of the new Negotiating Group on Trade Facilitation. The "Core Group" of developing countries favored Ambassador Muhamad Noor Yacob of Malaysia whereas most developed countries had favored Ambassador Manzoor Ahamad of Pakistan, who is an expert on customs matters. Some Members were also hesitant about Ambassador Yacob due to the strong position taken by Malaysia in excluding from the Doha agenda the other "Singapore issues", investment, competition and government procurement. Ultimately, the TNC appointed Ambassador Yacob. The TNC also appointed as Chairman of the Negotiating Group on Rules (antidumping, subsidies and regional trade agreements) Ambassador Guillermo Valles of Uruguay. He replaces Mexico’s Ambassador Eduardo Perez Motta, who has taken up the key appointment to head Mexico’s Federal Competition Commission.

The TNC also discussed the Sixth Ministerial Conference, to be held in Hong Kong in December 2005. TNC Chair, Director-General Supachai Panitchpakdi advised concentration on technical work and against setting explicit targets for Hong Kong at this stage. Supachai was no doubt mindful of the tendency of Members to allow preparations for Ministerial meetings to monopolise their negotiating energies - which would be better used in substantive negotiations. (It is far from clear that the Uruguay Round decision to hold Ministerial meetings at intervals of two years has been on balance beneficial. The successes of Singapore and Doha must be set against the failures of Seattle and Cancun, and the benefits of Ministerial involvement offset against the North-South polarization which these events seem inevitably to entail in the era of universal membership.) Nevertheless, Brazil and others urged that negotiating modalities for agriculture and industrial products should be finalized at Hong Kong.

Later, at the General Council meeting on 20 October, WTO Members set the date of the Hong Kong meeting for December 13-18, 2005.

B. Agriculture: Divisions Between Developing Countries Apparent

A meeting of the Agriculture Committee on 6 October focused on process and the organization of technical work, and informal technical discussions on key issues took place on 7 October. A theme which could underlie the entire negotiation was the apparent differences between those developing countries seeking the preservation of preferences and others who believe their net effects to be harmful. The Group of 20 (G-20) developing countries insisted at the meeting that the key issue is the removal of trade-distorting domestic support and export subsidies in the developed world. Members will soon establish a sub-committee to oversee the negotiations on cotton; other less formal working groups on specific issues will probably follow.

C. Rules Negotiations: Debate Over Fish Subsidies

The Negotiating Group on Rules discussed a Japanese proposal on fisheries subsidies, which was supported by Korea and Chinese Taipei but opposed by many others on the ground that it would effectively exempt Japan’s subsidies from any disciplines. These countries supported a proposal by New Zealand to prohibit all fisheries subsidies, with a few specific exceptions.

D. Industrial Market Access Negotiations: Refining the July Framework

In the group on Non-Agricultural Market Access little progress was made on tariff negotiations. It is clear that there will be a tariff reduction formula, but there is no agreement as to the form it would take, and some countries have even suggested that the "framework" agreed in July needs further clarification. Negotiators also attempted to meet a deadline to notify non-tariff barriers by the end of October 2004. Work on non-tariff barriers is also at the preliminary stages.

E. Services Negotiations: Some New Offers, The Old Argument Over Cultural Exceptions, and Perhaps a Different Approach Overall

The Services "cluster" of meetings was held in late September through early October. The Dominican Republic, Kenya, Gabon and Jordan submitted new offers of initial commitments. However, there are still only 48 initial offers on the table and their quality is poor: some would even imply regression from the current level of commitments, though that is not permitted by the GATS. Moreover, another 50 or so Members with important markets have yet to submit any offers at all.

At their recent meetings, services negotiators also participated in three valuable seminars - on logistics services, the movement of natural persons supplying services under Mode 4 of the GATS and cultural services. The last of these was organized in response to a draft Convention on Cultural Diversity produced in UNESCO which could have the effect of exempting from WTO rules a very wide range of cultural goods and services and cultural policies, thus re-igniting the old debate about a "cultural exception" in the GATS.

In other developments, some senior GATS negotiators have suggested that the "request-offer" approach to negotiations through submission of comprehensive lists of requests and offers might not be the most effective at this stage. Rather, efforts could be concentrated on obtaining meaningful commitments in specific sectors. The alternative is not a new approach, but would focus more directed attention at improving offers for certain sectors.

II. WTO Dispute Settlement Findings: Far-Reaching and Perhaps Unsettling

A series of far-reaching decisions by dispute settlement panels and the Appellate Body has underlined the growing importance of the WTO’s judicial function, whose effectiveness contrasts somewhat painfully with the halting negotiation of new disciplines. Two major decisions concerning agricultural subsidies for the cotton and sugar industries, important in their own right, will certainly affect the Doha negotiations on Agriculture.

A. Sugar and Cotton: Entrenched Programs by EU and US Found at Fault, Possible Implications for the Doha Round

First, on a complaint brought by Brazil, a panel ruled in September that U.S. cotton subsidies violate the obligations of the United States under both the Agriculture Agreement and the Subsidies Agreement. The panel called upon the United States to withdraw the subsidies "without delay," or at latest by 1 July 2005. Though the US has appealed against the finding, this is a major victory for Brazil and for agricultural exporting countries in general, since if the decision is upheld by the Appellate Body it will establish a precedent which could be used to challenge other agricultural subsidies, in the US and elsewhere.

The decision will also facilitate future complaints under the "serious prejudice" provisions of the Subsidies Agreement, which provide that subsidies cannot cause "serious prejudice to the interests of another Member." The panel agreed that there is no need to quantify precisely the degree of prejudice suffered and found a "detrimental impact" on Brazil’s production and trade in cotton. This was also the first major ruling on the "Peace Clause" provision of the Agriculture Agreement, which shields agricultural subsidies, mainly in developed countries, from challenge in the WTO. The panel found that the US had not complied with the conditions for invocation of the Peace Clause.

Second, another panel has ruled on 15 October, in a case brought by Australia, Brazil and Thailand, that certain EU subsidies to the sugar industry violate the Agreement on Agriculture. The panel found that the EU used profits from its domestic quota system to "cross-subsidize" sugar exports. In addition, in response to a claim by the EU that a footnote in its Schedule exempted a proportion of its sugar exports from subsidy reduction commitments, the panel ruled that the footnote was "fundamentally inconsistent with the basic provisions" of the Agricultural Agreement and was "of no legal effect."

The principle that Members cannot derogate from basic obligations by unilateral statements in their schedules is an important one, not only in the agricultural context. This case will also go to appeal, and the EU will argue before the Appellate Body that the decision, if confirmed will undermine the preferential access of a number of developing countries to the EU market. Nevertheless it seems likely that the panel findings will be confirmed, and will constitute another important precedent for challenges to systems of agricultural support and subsidy, which are the major issue in the Doha Round.

B. Challenges to Controversial Antidumping Remedy and Methodology: Byrd Amendment Retaliation and the Dispute Over "Zeroing"

A panel of arbitrators, at the end of August, authorized the EU, Japan, Korea, Canada, Chile, Brazil, Mexico and India to impose tariff sanctions on the US for failing to comply with an earlier finding that the "Byrd Amendment" was a violation of U.S. obligations under the Anti-Dumping and Subsidies Agreements. The complainants were authorized to impose tariff increases valued at 72 percent of the duties collected on their exports and disbursed to U.S. producers under the Byrd Amendment. The 72 percent figure is the arbitrators’ estimate of the degree to which the disbursements were "passed through" in price reductions by beneficiary U.S. companies. Three other complainants against the Byrd Amendment - Australia, Indonesia and Thailand - have agreed to an extension until 27 December of the period for U.S. compliance, and might also seek authorization to retaliate.

The Appellate Body confirmed in August a panel finding that "zeroing" methodology used by the United States in a dumping action on Canadian lumber violated the Anti-Dumping Agreement. "Zeroing" is the practice of ignoring, in calculating a dumping margin, cases where the domestic price for the good in question is higher than the export price: this negative margin is considered as zero, and the margin of dumping for the product as a whole is correspondingly inflated. The Appellate Body had also ruled against zeroing by the EU in the Indian "Bed Linen" case in 2001, and its new finding will be a powerful precedent in the EU’s ongoing challenge to U.S. zeroing practices.

C. Trans-Atlantic Tensions Ignite: "Divorce Proceedings" Filed Over Aircraft Subsidies and Customs Procedures

The cooperative relationship between the United States and EU, as embodied by the close ties between Commissioner Pascal Lamy and US Trade Representative Robert Zoellick, is now marked by greater tension. The two Ministers are transitioning in their terms, coincidentally, as new disputes are filed. The United States has requested consultations with the EU on subsidies to Airbus, thus initiating the dispute settlement process. The EU has responded with its own counter-request concerning subsidies to Boeing, setting up the prospect of a case of such magnitude that some commentators fear it will stretch the system beyond its political capacity. Others have suggested that pre-Election politics in the United States have played a role in the timing, at least, of the U.S. complaint, and that the parties will aim to resolve the dispute before the issue goes to a panel. It does appear, however, that the bilateral agreement of 1992 - which has kept the peace between the two great powers as far as aircraft subsidies are concerned - will no longer serve, and that a new understanding must be found, through negotiation or litigation.

The United States also launched a somewhat unexpected dispute with the EU regarding the lack of consistency in the administration of customs procedures within the newly expanded EU’s 25 Member States. EU expansion is said to add complexity and cost to the operations of U.S. exporters, and concerned industry groups, notably express delivery companies, have supported the US action. The European Commission, though it would no doubt welcome a single customs administration for the Union, has claimed that the dispute was politically motivated and could have been handled in a bilateral consultative forum (US-EU Customs Council).

III. The Looming Phase-out of Textiles and Clothing Quotas

The complex system of bilateral quotas which has regulated imports of clothing and textiles into the US, the EU and some other developed markets for the past 40 years will come to an end on 31 December 2004, as agreed in the Uruguay Round Agreement on Textiles and Clothing. The prospect of unrestricted competition from China and India in particular is causing much concern among U.S. and European manufacturers, but even more among smaller developing countries which have developed textile and clothing industries on the basis of assured quotas in their biggest export markets. By capping exports from major producers such as Hong Kong, the quota system encouraged the migration of capital and expertise and was therefore largely responsible for the spread of clothing manufacture to many new locations, for example, in South Asia and Africa. Many of these countries including Bangladesh, and several African nations now fear the extinction of their export industries by Chinese and other competition.

It is ironic that the end of the textile régime, so long reviled as a violation of basic GATT principles and a barrier to development, should be regretted by many developing countries. There have been informal suggestions of an extension of the quotas beyond 31 December, but it would be impossibleo reach agreement on such a proposal. Instead, seven developing countries proposed on 1 October a WTO work programme on possible solutions to the employment and other costs of the adjustment they will face. The proposal is still under discussion. The size of the problem is daunting: Bangladesh for example has said that the clothing industry accounts for 80 percent of its exports and one-third of its industrial employment, and is heavily dependent on quota access. Meanwhile, domestic industries in the US are also seeking remedy to the possible flood of imports. The United States Department of Commerce has indicated that it will consider requests for safeguard action against disruptive exports from China.

IV. Possible Leadership Struggles Ahead: Candidates for the Next Director-General

The process for the selection of a successor to Dr Supachai, who leaves office at the end of August 2005, has officially begun. There are so far three declared candidates: Mr. Carlos Perez del Castillo, the former Ambassador and Foreign Minister of Uruguay; Mr. Jaykrishna Cuttaree, the Trade Minister of Mauritius; and, most recently announced, Mr. Luis Felipe de Seixas Correa, the current Ambassador of Brazil in Geneva. The former Ambassador and Trade Minister of Canada, Mr. Sergio Marchi, has announced that he will not be a candidate.

All nominations for the post must be submitted by mid-December. Afterwards, WTO Members will attempt to rally support for one candidate over another and choose a successor by summer 2005.

Negotiations in the Doha Round have proceeded at the technical level with renewed momentum after the mandate of the July package of framework agreements. WTO Members also set a new target for themselves with the next Ministerial Conference in Hong Kong on 13-18 December 2005. The course to Hong Kong will be challenging as much needs to be done at the technical level, including defining and establishing negotiating modalities for the framework agreements in agriculture and industrial market access. Moreover, service negotiations, which have been lagging due to the lack of meaningful offers, must pick up pace by the target date of May 2005 for improved offers if the opportunity for significant services liberalization in this Round is not to be missed.

Among other factors that could influence the pace of negotiations are the possible struggles over leadership of the WTO, as well as far-reaching WTO disputes. It is to be hoped that the selection of the Director-General will be less contentious than in 1999, but it could last into the summer of 2005. In other developments, the United States and EU are facing difficult disputes in agriculture with major exporting nations, and with each other over aircraft, the Byrd Amendment and other sensitive issues. Trans-Atlantic leadership and cooperation have been critical in this Round, and high-profile disputes could be disruptive.

Once new leaders are in place, it will be critical for them and their counterparts to exert political guidance as Members attempt to progress from framework agreements to modalities and improved market-access offers, and ultimately, to conclusive and meaningful reform.

For further information, please contact David Hartridge in Geneva (dhartridge@whitecase.com), or Mark Nguyen (mnguyen@whitecase.com) in Washington DC. Thank you.